Should I max out my Roth IRA as an 18 year old?

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fung
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Should I max out my Roth IRA as an 18 year old?

Post by fung » Tue Oct 03, 2017 11:53 pm

I'm 18 and I've been contributing about $66 per week to my Roth IRA (around $1300 to date).

I looked at my YTD salary for my part-time job and just realized that it was above $5.5k (around $6.3k), which makes me eligible to max it out.

Should I max my Roth IRA (I have a target date fund in it [Vanguard 2065 retirement fund] and I'll increase the weekly contribution to about $300 to max it out)?

For reference, I have about 12k in my bank and I don't spend it very often.

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Bruce
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Re: Should I max out my Roth IRA as an 18 year old?

Post by Bruce » Tue Oct 03, 2017 11:59 pm

Yes

If you can afford to contribute the maximum to a Roth IRA at a young age you will be off to a solid foundation of good habits investing for the future.

The target fund you selected is a good choice to get started.

Pay yourself first, and follow William Bernsteins advice in his book "If you can", and you will be way ahead of most 18 year olds.
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sergeant
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Re: Should I max out my Roth IRA as an 18 year old?

Post by sergeant » Wed Oct 04, 2017 12:10 am

Yes, but please also enjoy yourself. Don't become fixated on only saving. You're at an age that you should be having lots of fun! :beer (Drink depicted is non-alcoholic)
Lincoln 3 EOW!

Bwise1
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Re: Should I max out my Roth IRA as an 18 year old?

Post by Bwise1 » Wed Oct 04, 2017 12:12 am

I maxed my Roth starting at 18. Put it into a 5 year cd for a long time which was not the best advice for an 18 YO.

If you can max it at 18 and going forward, future you will be very happy.

traveler901
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Re: Should I max out my Roth IRA as an 18 year old?

Post by traveler901 » Wed Oct 04, 2017 12:19 am

Yes, but don't be afraid to use the money down the line. If I had that kind of money at 18 I would have done an entire semester abroad in college (or a full year).

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FiveK
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Re: Should I max out my Roth IRA as an 18 year old?

Post by FiveK » Wed Oct 04, 2017 12:23 am

fung wrote:
Tue Oct 03, 2017 11:53 pm
I looked at my YTD salary for my part-time job and just realized that it was above $5.5k (around $6.3k), which makes me eligible to max it out.
For reference, I have about 12k in my bank and I don't spend it very often.
Based on that, it appears your parents are providing food, clothing, and shelter.

What is their opinion?

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fung
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Re: Should I max out my Roth IRA as an 18 year old?

Post by fung » Wed Oct 04, 2017 12:24 am

traveler901 wrote:
Wed Oct 04, 2017 12:19 am
Yes, but don't be afraid to use the money down the line. If I had that kind of money at 18 I would have done an entire semester abroad in college (or a full year).
I'm not interested in studying abroad/the school I go to right now is really good I think! Thank you for the suggestion though! I'll probably end up spending the money on books or a new computer or game in a few years

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fung
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Re: Should I max out my Roth IRA as an 18 year old?

Post by fung » Wed Oct 04, 2017 12:26 am

FiveK wrote:
Wed Oct 04, 2017 12:23 am
fung wrote:
Tue Oct 03, 2017 11:53 pm
I looked at my YTD salary for my part-time job and just realized that it was above $5.5k (around $6.3k), which makes me eligible to max it out.
For reference, I have about 12k in my bank and I don't spend it very often.
Based on that, it appears your parents are providing food, clothing, and shelter.

What is their opinion?
Yes - my parents are (thankfully) paying my college tuition and housing. My dad is against investing for retirement in general (he told me investing in an IRA is only for old white men which obviously is wrong), so I don't really take his investing advice seriously (so I come here).

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FiveK
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Re: Should I max out my Roth IRA as an 18 year old?

Post by FiveK » Wed Oct 04, 2017 12:38 am

fung wrote:
Wed Oct 04, 2017 12:26 am
Yes - my parents are (thankfully) paying my college tuition and housing. My dad is against investing for retirement in general (he told me investing in an IRA is only for old white men which obviously is wrong), so I don't really take his investing advice seriously (so I come here).
At the very least you could take the $5500-$7500/yr Direct Unsubsidized Loans to reduce what your parents are paying. Assuming you get a degree that leads to a job allowing quick repayment of those loans, starting now with your retirement investing is a fine idea.

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badbreath
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Re: Should I max out my Roth IRA as an 18 year old?

Post by badbreath » Wed Oct 04, 2017 12:52 am

Yes put some in there but maybe not the max so yo can have some fun also.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

Inframan4712
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Re: Should I max out my Roth IRA as an 18 year old?

Post by Inframan4712 » Wed Oct 04, 2017 6:22 am

fung wrote:
Wed Oct 04, 2017 12:26 am
FiveK wrote:
Wed Oct 04, 2017 12:23 am
fung wrote:
Tue Oct 03, 2017 11:53 pm
I looked at my YTD salary for my part-time job and just realized that it was above $5.5k (around $6.3k), which makes me eligible to max it out.
For reference, I have about 12k in my bank and I don't spend it very often.
Based on that, it appears your parents are providing food, clothing, and shelter.

What is their opinion?
Yes - my parents are (thankfully) paying my college tuition and housing. My dad is against investing for retirement in general (he told me investing in an IRA is only for old white men which obviously is wrong), so I don't really take his investing advice seriously (so I come here).
Is your father rich? If so, maybe you should listen to his advice. Perhaps he invested in several businesses and it has worked out for him. Index funds aren't the only way, you know.

indexonlyplease
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Re: Should I max out my Roth IRA as an 18 year old?

Post by indexonlyplease » Wed Oct 04, 2017 6:24 am

My son opened a Roth IRA at Vanguard 19 when he graduated high school and started working part time. Now at 21 in college and working part time.
We always do a match with him. It was $100 a month and now maxed out with our match.

I would think put in the amount you can afford for the long haul. Maybe your parents will match you if they can.

Also, read William Bernsteins advice in his book "If you can" (Amazon) short booklet. He talks about starting at 25, so you are way ahead.

deltaneutral83
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Re: Should I max out my Roth IRA as an 18 year old?

Post by deltaneutral83 » Wed Oct 04, 2017 8:12 am

One thing I would entertain is just putting it into US Total instead of a target date fund for the amount you've allocated toward investing. While there will be plenty of opinions, I wouldn't want bonds in my portfolio at 18 (or 28 for that matter) unless you have won the game or some other rarity at this stage.

Nearly A Moose
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Re: Should I max out my Roth IRA as an 18 year old?

Post by Nearly A Moose » Wed Oct 04, 2017 9:30 am

Yes, unless you'll need that money for spending while in college, I'd recommend maxing it out or something close to it. Future you will thank you. Not just for the money saved, but also for the tax advantaged space, which is use it or lose it. If you end up in a higher income career track, that will be especially important.

I found the things I enjoyed the most in college rarely cost me much, but I also went to school in an extremely low cost area.

And congrats on having the foresight to fund a Roth while in college and to find this forum. You seem to have a good head on your shoulders and are off to a good start.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

Nate79
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Re: Should I max out my Roth IRA as an 18 year old?

Post by Nate79 » Wed Oct 04, 2017 9:48 am

Emergency fund in place? No debt now or expected in the future (for example for car or college)? Any plans in next 3-5 years to save towards?

If you are ok on the above questions then ok. If not then I would focus on the above details first before worrying at all about a Roth.

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CyclingDuo
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Re: Should I max out my Roth IRA as an 18 year old?

Post by CyclingDuo » Wed Oct 04, 2017 9:49 am

fung wrote:
Tue Oct 03, 2017 11:53 pm
I'm 18 and I've been contributing about $66 per week to my Roth IRA (around $1300 to date).

I looked at my YTD salary for my part-time job and just realized that it was above $5.5k (around $6.3k), which makes me eligible to max it out.

Should I max my Roth IRA (I have a target date fund in it [Vanguard 2065 retirement fund] and I'll increase the weekly contribution to about $300 to max it out)?

For reference, I have about 12k in my bank and I don't spend it very often.
The good news is that you are socking away some of your part-time earnings into the ROTH as it is. Kudos to you for doing that as the money going in now will provide the most bang for the buck over the decades ahead.

Do you need to max it out?

If you have made $6.3K thus far this year, saving 10% up to this point for the year would be $630, 15% would be $945, 20% would be $1260, and 25% would be $1575. Those percentages are all well within the "save for retirement range" that financial advisors would suggest that you make a routine for your entire life. Of course, one can go beyond those percentages when enough cash is available for investing without upsetting the rest of one's budget for life's needs/expenses. In your case, your food/shelter/clothing is being covered by your parents, so you could super-save more than standard retirement saving percentages.

You will have to ask yourself of the $12K you have saved in your bank account, what that will be used for and when it will be needed. If removing enough of the $12K to fully fund your ROTH max of $5500 for this year would not cause stress on what you intend or intended to do with the $12K - then by all means, fund the ROTH! You will thank yourself decades from now.

Keep on socking away some of your earnings! :moneybag :moneybag

Read up on the 50/20/30 rule to prepare yourself for good budget discipline as you make the transition from teenager, to working adult after you finish college.

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